Sustainability is the key – also with BEE
The empowerment projects in which wine producers are taking part, must be sustainable to ensure economic growth of the wine industry at large and its communities, said the VinPro chairman, Abrie Botha, at the annual series of district conferences. It was the second time these conferences, which took place in June, were presented in collaboration with Wine Cellars South Africa (WKSA), and they were characterised by exceptionally good attendance and active participation.

The series of five conferences, which had board members and management travelling literally throughout the entire winelands, was attended by more than 500 interested parties who received first-hand information about how current industry matters are being addressed by their representatives at various levels. The emphasis was on BEE and land reform in particular. Market and financial realities, crop size and handling, as well as technology transfer also came under the spotlight.

With regard to BEE an announcement was made by the deputy chairman of VinPro, Johann Krige, that the producer organisation aimed to establish a BEE advisory service in the course of next year to consult with producers on “how to get their house in order”. VinPro has allocated R500 000 to this end and negotiations with potential suppliers of additional financing are currently under way.

Mr Krige added that the VinPro initiative to obtain 0 million abroad to finance the empowerment models that have already been identified and drawn up in collaboration with Stellenbosch University, has been put on hold until the Wine Industry Charter for Empowerment has been finalised. Expectations are that it will shortly be made available by the launching committee to the wine industry role players for their input, before being tabled with the Department of Agriculture.

“There is enormous goodwill and we would like to give impetus to land empowerment at ground level,” said Mr Krige.

At the conferences Abrie Botha called on producers to approach “the necessity of sustainability with new thoughts and open minds”.

“We as wine farmers and suppliers of raw material for the end product that has to be marketed, are undoubtedly a cardinal link in the wine industry value chain – I dare say we are in fact the most important link. This is one of the reasons why the sustainability of the wine farmer is crucial to the sustainability of the industry on the whole, including all stakeholders in the industry, including VinPro.

“Farmers will have to produce in a focussed manner and allow themselves to be guided by the market – production processes must be streamlined towards the end goal of the grapes. We simply have to ask ourselves: Are my farming activities, given my current management and production processes and the extent thereof, capable of ensuring me a sustainable livelihood, or should I take a fresh, drastic look at these farming activities and the management thereof The small farming units in particular, usually with inordinately heavy capital structures, demand serious reflection on sustainability.”

Manage the structural changes

It is important to manage the ongoing changes in the umbrella industry structures and the roles being played by these bodies, because this will impact on the sustainability of the wine producer.

Thus cautioned Jos le Roux, chief executive of VinPro, with reference to the role played by this organisation in the above-mentioned changes.

“The ever-changing business environment forces us to adapt more rapidly and on an ongoing basis to ensure longer term survival. And to be able to adapt quickly, we simply have to be part of a network in which information and technology transfer are happening on a continuous and timely basis.

“The network is represented by the various industry bodies, with VinPro occupying the central position as prominent producer chamber.

“VinPro has the infrastructure and networks to keep wine farmers fully informed, not only about technological, economic and market issues, but also with regard to the communication and liaison process with all role players who are set to influence the future of our industry,” Mr Le Roux said.

Abrie Botha added that the involvement of VinPro in industry organisations such as the SAWB and its participation in “critical broader wine industry matters including BEE”, nevertheless incurs huge financial expenses. It is possible that VinPro’s own income, even though steadily increasing, might be insufficient to fulfil its function properly when the annual KWV contribution comes to an end. In future the producers will have to support VinPro financially to ensure ongoing collective benefit.

Invest in human capital
“You must help people to help themselves – then you don’t need all the gimmicks.”

Thus spoke Mohammad Karaan, lecturer in agricultural economics and prominent BEE expert, when he addressed a packed conference hall at Delvera, just outside Stellenbosch, on the current state of affairs of BEE in the wine industry.

Karaan, who has been involved in the formulation of six land empowerment models at the specific request of VinPro, made special mention of “investment in human capital – the big problem, which requires a huge contribution by organised agriculture”.

“To this end we are looking for entrepreneurs. How many black entrepreneurs have we created

“We have the best constitution and the best agricultural plan. But we lack the right tactics. There is much goodwill among the wine producers.

“Ownership and control should go hand in hand. We cannot simply have a redistribution of assets; there must be economic growth so that the cake of prosperity can become larger, For those who are working towards that end, the future should be prosperous.”

In reference to “human” or “social capital” Karaan proposed a system of “natural incubatorship” – in which the owner, as happens with many farmers who have sons on their farms, takes them by the hand as ‘mentors’ and prepares them for participation in all aspects of farm management.

“In this country we have countless farmers who rank among the best in the world – farmers who are successful in a country that is not an ideal agricultural country. Farming is not for softies. But if you have it; how do you use it”

The strategy entails that the success of existing farmers be expanded while new farmers are brought along via mentorships. The good farmer will play his role by setting up incubation systems and building human capital. However, this should take place with the minimum paternalism.

Unfortunately little has been achieved in the field of BEE in agriculture over the last decade. “There have been successes, but many initiatives did not work out.”

There were about 120 projects in the agricultural sector, but their results are not promising. The critical problem is that while the market has to ensure that land reform is successful, private sector investment is insufficient.

The government is running out of patience. “The government has been very hands-off up to now, but it may become involved.

“There remains large-scale opportunism among farmers and many of them want to solve their own problems with reform.”

As far as land reform is concerned, less than 1% of the land was returned to black ownership in 1994 – 2004. Up to date there have been 500 recipients of government grants to purchase land and fewer than 40 initiatives. On the other hand there has been significant private participation in the wine industry in that 20 black people have purchased farms with own capital, including three business magnates, a judge and several doctors, lawyers and retired teachers. The bottom line is that empowerment should be about the “negotiable assets obtained by people. The crisis is all about the sustainability of human capital”.

Karaan added that BEE had indeed gained momentum thanks to the initiatives of Gavin Pieterse of Sawit and Johan van Rooyen of SAWB. They are key role players in the process of drawing up the Wine Industry BEE Charter which has to conform with the Department of Trade and Industry’s Codes of Good Practice on BEE, the Liquor Industry Manifesto and the AgriBEE framework.

“Everyone is in a hurry to get going and finalise matters, but there are no shortcuts.”

New thinking in marketing

South Africa has the potential to grow its wine market significantly, but it should first adopt new patterns of thinking and rid itself of the old sentiments and traditions. So said Henk Bruwer, chairman of WCSA, in a discussion on “The Market Environment”.

This was Mr Bruwer’s answer to the hypothetical question whether South African was able to double its market, inter alia with reference to the success of Australia, which grew its per capita wine consumption from 8,9 litres in 1970 to 19,3 litres in 2000, in contrast with that of South Africa, which has decreased from just over 9 litres to 7,9 litres in recent years, although it did increase in rand value. Positive indicators – from Wines of South Africa – are that the world-wide cycle of oversupply may end within the next two years. The USA is expected to be the biggest wine importer by 2010, but the UK will remain the biggest market with 46%. Supermarkets will be more powerful and make use of fewer suppliers.

It is significant that the black market is beginning to “ask for wine”. In actual fact, there is a strong trend for black people to go straight to red wine and not via white. Also note that young people are beginning to drink wine. Trends in wine consumption are increased consumption with meals especially at Sunday lunch, on Mother’s and Father’s Day and at stokvel meetings. The most popular brands are JC Le Roux and Nederburg Baronne and the emphasis is on status and ‘making an impression’. The most popular places to buy are shebeens, supermarkets and spaza shops.

“The road ahead will be determined, however, by the consolidation of buyers, national and international. There is currently a fragmented offer by the cellars and producers. We will have to take a serious look at sharing facilities in the operational environment and joint marketing initiatives … and rather do it now, voluntarily, than later, when we may be forced to do so.”

No return to foil bags! He was convinced that the government would formulate policy about the phasing out of foil bags to prohibit the distribution of wine in such containers as from 1 July 2005, said Henk Bruwer, chairman of WCSA. This was in response to an accusation that there had not been sufficient consultation in this regard, made by a wine farmer and liquor store owner from Wellington, Tienie Malan, at the district conference for Stellenbosch, Paarl and Malmesbury. Malan apparently sells foil bags on a large scale and said he would continue to do so, regardless of the expected legislation forbidding the practice.

This followed on reports that the wine industry was also being accused by the Department of Trade and Industry that it had not consulted sufficiently about the decision to phase out foil bags. Dr Tshenge Demana from the Department’s Division for the Development of Businesses and Industries apparently said in a letter that the industry’s negotiations appear to have been limited to a small group of stakeholders. The health and safety risks of the packaging were not clear, said the letter. In reaction to Malan’s allegations Mr Bruwer pointed out that the letter said the wrong parties had been contacted. The changes to legislation that had been requested, have meanwhile been taken up with the Department of Agriculture.

Dr Johan van Rooyen, chief executive of SAWB, reassured producers that all the “chambers” of the organisation had been consulted and that comprehensive studies had been done. Those who are complaining are in the minority. The industry took the decision based on a properly planned process. It is important to raise the image of the industry to a higher level – the negative impact of foil bags on excise duty is well known.

More information
The following presentations may be read in full on the VinPro website:

What does the market look like (Henk Bruwer)
Crop and sales – effect of smaller crop and lower supply levels (Gert van Wyk)
On the forefront (Francois Viljoen and Jos le Roux)
Impacts on farming (Adri Esterhuyse – ABSA)
BEE – where do we stand (Jos le Roux)
Sustainability and Financial Position (Abrie Botha)
Or contact Elsab Ferreira on (021) 807-3104.

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